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The average 401(k) savings rate — including employee deferrals and company contributions — has held to historic levels as plan designs make it easier for workers to put money aside.
In 2023, the average combined savings rate was about 11.7%, a record high since 2022, according to Vanguard’s annual analysis of more than 1,500 eligible plans and nearly 5 million participants.
A separate Fidelity report also found record savings at a combined rate of 14.2% for the first quarter of 2024. That report was based on nearly 26,000 company plans and nearly 24 million participants.
Vanguard recommends saving 12% to 15% of your earnings, including employer contributions, for retirement each year. Fidelity’s benchmark is 15%.
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“You want to increase how much you save by at least 1% each year,” and aim for that combined benchmark of 12% to 15%, said Dave Stinnett, Vanguard’s head of retirement strategy consulting.
Nearly 25% of participants deferred more than 10% of earnings to 2023, according to the analysis. And 43 percent of workers increased their savings rate that year, Vanguard reported.
In 2023, an estimated 14 percent of participants reached the 401(k) deferral limit, which was $22,500 for savers under 50, Vanguard found. This share of employees who maximize plans it is the same from 2020.
401(k) plan designs have enhanced savings over time
The average employee deferral rate returned to a record high of 7.4 percent in 2023, after falling slightly the year before, according to the Vanguard report. Workers deferred an average of 9.4% during the first quarter of 2024, according to Fidelity.
401(k) plan features such as automatic enrollment and higher default savings rates have increased employee deferrals over time, Stinnett said.
“They come with a higher initial savings rate,” he said. “And many of these plans have an auto-increase or step feature where people automatically save 1% more each year.”
About 60 percent of 401(k) plans had a default savings rate of 4 percent or higher in 2023, compared with 35 percent with that rate a decade ago, Stinnett said.
“Various factors” determine your retirement savings goal
While financial services firms have identified benchmarks for retirement savings, the right percentage varies based on individual needs, experts say.
“I typically advise a savings goal of 15 percent, combining both employee and employer contributions,” but the goal can vary based on “a number of factors,” said certified financial advisor Alyson Basso, managing director of Hayden Wealth Management in Middleton, N.Y. Massachusetts.
Each client’s situation is unique and their savings strategy should reflect their individual needs, goals and circumstances.
Alison Basso
CEO of Hayden Wealth Management
Your age, proximity to retirement, income level, lifestyle expectations and current debt are among the factors used to determine the right rate, he said.
For example, older clients may need to save more aggressively if they have not met their retirement savings goals, while younger clients may gradually increase deferrals as income increases. However, Gen Z embraced investing early on, while Gen X struggled to catch up.
“Each customer’s situation is unique and their savings strategy should reflect their individual needs, goals and circumstances,” Basso added.
